• Cecilia Chen

Employee Share Schemes: A greater connection to the workplace


Employee Share Schemes have become more and more popular among large corporations. Employers can offer company shares as an incentive for employees to work hard to improve company's financial performance. Employees can benefit from Employee share scheme in a number of ways. Some of the main benefits may include:

- Building stronger loyalty and commitment to their workplace

- Better job satisfaction achieved through receiving award from improving company's performance

- A sense of ownership of the company that they work for

- More flexibility with work arrangements

- Able to acquire shares at a discounted price

- Potential additional income from capital growth of their shares

Employee Share Schemes are long-term incentives for the employees. They are generally offered to create employee ownership of the company. Some employee shares schemes are offered with a condition of certain performance targets being achieved in order to ensure company's financial targets are achieved.

Employee Shares are used to align the interests of the company shareholders and the employees. When employees are offered shares of the company, they are more likely to focus on the company's financial success which will enhance the capital growth of their shares.

Employers can benefit from Employee Share Schemes in the following areas:

- Better long-term retention rate for their staff

- To better align their employees' interests with the shareholders

- Increased staff motivation and productivity

Employee Shares Schemes can be offered no matter what size your company is. Employee share schemes can be offered for publicly listed companies or privately owned companies. Unlisted companies often use similar types of plans as listed companies.

When considering the type of plan that is offered to employees, one of the considerations may be the tax concessions that are available. To understand these issues more completely, feel free to consult our office.

Employee Share Scheme may be subject to state payroll tax. However, the rules vary between states and you will need to check with your local State Revenue Office to determine how payroll tax may apply to the Employee Share Schemes that you issue.

When designing the employee share scheme plan, relevant employment law should be considered. For instance, when an employee share scheme plan is provided, this may have potential impact on the contractual arrangements including certain employee awards. For instance, some employee awards do not provide for salary sacrifice arrangements.

When Employee Shares Schemes are implemented, substantial considerations are to be given on various legal and regulatory requirements including but not limited to the following:

- The provisions of the Corporations Act 2001 relating especially to offers of shares

- The relevant stock exchange listing rules for listed companies

- The company constitution

- The provisions of the Corporations Act restricting companies from dealing with their own shares

- Taxation law issues, including income tax, capital gains tax, pay as you go withholding and fringe benefits tax

- The provisions of the Corporations Act relating to financial services regulation, and the rules regulating financial advice

- Other provisions of the Corporations Act relating to licensing, advertising, hawking, managed investment schemes and on-sale of financial products

- Accounting standards

- Privacy legislation

As an employee receiving these shares it is important to consider how you will hold the shares, what kind of shares are on offer and your own financial understanding of their value.

The business structure will be important for both those being offered shares as well as those allocating the shares. The business structure as well as the allocated share type may or may not hold influence on decision making or hold voting rights within shareholder meetings. An employer may opt to offer non voting rights utilising clauses or alternative share classes. This may also consider the issuing of new shares or if the employer is using existing, as well as the consideration of if more shares being issued in the future.

Different share classes will be a topic in another blog in the new future and will be linked here when it is.

We welcome you to contact us around structuring your business to provide for employee shares, or to discuss your offer from an employer for shares.

#shareholderagreement #Sharetypes #CapitalGains #EmployeeShareSchemes

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The Great Bean Counters are Registered Tax Accountants offering accounting services to Brisbane’s Western Suburbs including but not limited to: Moggill, Chapel HillKenmore, Fig Tree Pocket, Indooroopilly, Upper Brookfield, Brookfield, Pullenvale, Pinjarra Hills, Bellbowrie, Anstead, Mount Crosby, Kholo, Kenmore HillsKarana Downs, Toowong and Middle Park.

We are a Brisbane based accounting firm.

*Liability limited by scheme approved under Professional Legislation

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